divorce tax consequences - Chicago Illinois Family Law Blog
In a previous blog post, we addressed the impact divorce has on filing taxes, and discussed what happens to taxes for a primary residence as well as what marital status a person should claim depending on their situation. Now, we will touch on other factors one must consider when paying their taxes after divorce, including child custody and alimony.
Recently, custody arrangements have become very complicated, with many parents sharing custody of their children over weekends or during the week. These arrangements become problematic in that IRS regulations and the most recent version of the tax code do not precisely define custodial parent or custody. In general, someone can only claim their children as dependents if they were the designated custodian by court order. If no such agreement or order exists, or if someone has joint custody of their child, the custodial parent is considered to be the parent that had physical custody of the child for the majority of the year. If custody is shared 50-50, many divorced couples alternate who claims the child on their taxes from year to year in order to share the tax benefit. It is illegal for both to claim the same child as a dependent in the same year. If there is more than one child, many tax experts suggest dividing the children’s dependency between the parents in order to avoid confusion. Even if both children spend the same amount of time with each parent, doing so is legal.
Filing taxes is a process that can quickly become complicated, particularly if someone divorced during the tax year. Generally, the rules for divorced taxpayers have not changed much over the past few years; however, divorce has, with changes in the way property and custody is divided. This makes figuring out what a person owes in taxes more complicated than ever. Time recently shared several tips to help those who are divorcing or already divorced when filing their taxes, which we will discuss in a two-part series.
For marriage status, follow the calendar. Even if a person’s divorce was finalized in 2011, in regards to 2010 taxes, they are still considered married. However, if someone’s divorce was finalized in December, they are not able to file as married, even if they were married for the majority of the year.
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